by Treasury has been accruing Reserves in the General Account to record high levels... here on Tuesday the account closed at 8B: A few thoughts on this new policy:Looks like what SOT Mnuchin has worked out is that he is allowing the Fed to acquire assets with new Reserves BUT he is "draining" them from the Depositories by increasing the TGA $ with what the Fed is doing and protecting the Depository System's Leverage Ratio from a catastrophic collapse... Its actually kind of a nice work around quick fix.. its a good way to get thru this and save the regulatory reform for later... so we should see the TGA increase just track the increase in the Fed H.4.1 as Fed adds Reserves...Then he will probably just keep the TGA elevated until the Fed programs start to roll off.... he will just
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Treasury has been accruing Reserves in the General Account to record high levels... here on Tuesday the account closed at $958B:
A few thoughts on this new policy:
Looks like what SOT Mnuchin has worked out is that he is allowing the Fed to acquire assets with new Reserves BUT he is "draining" them from the Depositories by increasing the TGA $4$ with what the Fed is doing and protecting the Depository System's Leverage Ratio from a catastrophic collapse...
Its actually kind of a nice work around quick fix.. its a good way to get thru this and save the regulatory reform for later... so we should see the TGA increase just track the increase in the Fed H.4.1 as Fed adds Reserves...
Then he will probably just keep the TGA elevated until the Fed programs start to roll off.... he will just bring the TGA down at the same time the Fed brings the H.4.1 down $4$....
I dont think we have to worry about "debt ceiling" until 2022 sometime... so SOT can just issue as many USTs as he has to to offset the Fed Reserve add during this virus shutdown causing a lot of liquidations in shares and bonds...
Its not fully ideal and we should expect some volatility (perhaps some short term bearishness from time to time as TGA may fall from day to day) but I think SOT has it figured out enough to avoid GFC2 for now... its not a bad play...
Fiscal is starting to accelerate but it appears SOT is not going to let the TGA drop it appears he is going to increase issuance to keep the TGA elevated even while net withdrawals increase...
We need to monitor this to make sure the TGA doesn't drop... it would be catastrophic.. or if we see the TGA keep increasing beyond Fed Reserve additions it would then add additional support to the Depository System which seems like it is right on the edge of regulatory limits...
We have to see which way it goes from here... up, down or unchanged...
TGA bottomed on Friday March 20th at 388B... Stock market then bottomed Monday March 23rd.... now TGA is at 958B so SOT has drained about $600B since market bottom on March 23rd....
Equity prices have bottomed in response...
Now last 2 days the fiscal finally coming in... nobody else knows that...and importantly SOT seems to be 'sterilizing' the fiscal via the TGA so no harm there...
Fingers crossed... not a recommendation....